Study Guide for Mankiw's Brief Principles of Macroeconomics, 7th
7th Edition
ISBN: 9781285864266
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 17, Problem 5QCMC
To determine
Reason for changes in inflation and
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The most likely explanation for why the price index is rising is because
People are receiving greater income from helicopter checks and extended unemployment benefits so they can be more discriminating buyers to find the lowest prices.
People are receiving greater income from helicopter checks and extended unemployment benefits and the money is beginning to enter the real economy.
Firms are receiving more orders so productivity is rising allowing inflation to ease.
Businesses receive greater income so they have an incentive to expand capacity.
Explain why a sudden, large burst of inflation could lead to a recession?
Describe the fiscal and monetary measures that are normally taken to curb inflation.
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Study Guide for Mankiw's Brief Principles of Macroeconomics, 7th
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- Discuss the short-run tradeoff between inflation and unemployment.arrow_forwardIn the graph you've just made, what is the unemployment rate and the inflation rate if the Fed overstimulates but the expected inflation rate remains at 2 percent? The unemployment rate _______ percent and the inflation rate _______ percent. A. decreases to 4; rises to 3 B. remains at 8; remains at 1 C. decreases to 5; rises to 4 D. decreases to 5; rises to 2arrow_forwardAnna Graham is the new Treasury Secretary, and she is trying to interpret some inflation measures. In year one, the aggregate price level increased by 11% and in year two, the aggregate price level decreased by 1%. Which statement accurately characterizes the changes in the nation's price level? In year one, the economy is experiencing deflation. In year two, the economy is experiencing inflation. In year one, the economy is experiencing inflation. In year two, the economy is also experiencing inflation. In year one, the economy is experiencing inflation. In year two, the economy is experiencing deflation. In year one, the economy is experiencing deflation. In year two, the economy is experiencing disinflation.arrow_forward
- If the economy is in long-term equilibrium and cost of energy for production increases, which of the following is likely to occur? Select one: a. It will lead to demand-pulled inflation and create an expansionary gap. b. It will lead to demand-puled inflation and create a contractionary gap. c. It will lead to cost-pushed inflation and create an expansionary gap. d. It will lead to cost-pushed inflation and create a contractionary gap. e. It will create hyperinflation in the economy, but will not create an economic gap.arrow_forwardFILL IN THE BLANKS Inflation measures the changes in the level of in the economy. Demand-pull inflation is caused by a shift in the aggregate demand curve, while cost-push inflation is caused by a shift of the aggregate supply curve. When the price level is increasing by an extremely high rate, the economy is said to be experiencing . Stagflation occurs when the economy is experiencing high inflation, high unemployment, and low at the same time. To combat inflation, the government can use contractionary monetary policy which will also lead to interest rates. Note, however, that there is a short-run tradeoff between inflation and as illustrated by the Philips Curve. Inflation is stable when the unemployment rate is equal to the rate of unemployment.arrow_forwardWhat's wrong with this way of thinking? "When the government runs a budget deficit, it simply pays its bills by printing more money. As the newly printed money works its way through the economy, it waters down the value of paper money already in circulation. Thus, it takes more money to buy things. Budget deficits are the major cause of inflation."arrow_forward
- Explain the two causes of inflationarrow_forwardWhen an economy approaches full employment, why does demand-pull inflation become a problem? Explain.arrow_forward1. The inflation-unemployment relationship The following graph shows the combinations of unemployment and inflation that existed in the United States for selected years between 1961 and 1969. Click on any blue point (circle symbol) on the graph to get its exact coordinates. You can also use the black point (cross symbol) to find the coordinates of other points along the curve. (Note: You will not be graded for any adjustments made to the graph.) NFLATION RATE (Percent) 5.0 4.5 4.0 3.5 3.0 2.5 20 1.5 1.0 0.5 0 3.0 3.5 1969 1968 1967 1965 4.0 1964 4.5 6.0 UNEMPLOYMENT RATE (Percent) 5.0 5.5 1963 6.5 1961 7.0 ?arrow_forward
- One of the fiscal measures of dealing with inflation is: a. Implement a budget surplus b. Operate a budget deficit c. Increase the rate of interest d. Operate a balance budgetarrow_forwardYour senators claim that lowering prices would be good for everyone—“Who doesn’t like lower prices, after all?” They tell you they plan to lobby for deflation. Falling prices could lead to a bad situation because:arrow_forwardA central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?arrow_forward
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